What properties are in demand in the investor market right now?

Detached family houses, older-style units in smaller blocks and all types of homes in more affluent areas where tenants are likely to be able to comfortably pay rising rents are currently among the most in-demand properties for investors.

“There’s no doubt that the pandemic has lifted people’s eyes to the advantages of having more outdoor spaces and perhaps more land around houses, so we’re seeing those very popular with owner-occupiers,” says Ben Kingsley, chair of the Property Investors Council of Australia.

“And then tenants follow the same demand; they want to live in those places too. So those are the kind of properties that we’re looking at for investors.”

With house rents across the combined capitals reaching a record high of $515 per week and unit rents growing at an even faster quarterly pace, according to the latest Domain Rent Report for the June quarter, many residential investments are now in cash-positive territory.

But it’s wrong to seek suburbs where rent has jumped the most as that might be an indication that there’s no more growth in store and conveys little about existing tenants’ ability to meet higher rents, says Michael Yardney, chief executive of Metropole Property Strategists.

“You might have tenants in those areas who are already paying more than a third of their income on rent, and they won’t be able to afford to pay more,” he says. “It isn’t about rents anyway; it’s about capital growth.

“We always say that rent keeps you in the game but capital gain gets you out of the rat race. So you need to buy in areas that are becoming more affluent and gentrifying, which are no more than 20 minutes away from good shops and cafes, and where people aspire to live.”

With prices easing in Melbourne and Sydney at the moment, and many buyers sitting on their hands, worried about the impact of rising interest rates and the 6.1 per cent inflation rate over the past 12 months, that does provide opportunities, Yardney believes.

“If your finances are right, you can look and pick the eyes out of the market now, with very little competition,” he says. “Although there’s a limited stock of A-grade homes available at the moment, the ones that are there offer great opportunities. Investors should never compromise on either a property or a location.”

Regional areas are also still very popular, says Lloyd Edge, managing director of property investment strategists and buyers’ agent Aus Property Professionals.

Investor demand is particularly strong for homes up the coast from south-east Queensland and busy regional centres. The key in those areas to the likelihood of strong capital growth and good rents tends to be the supply of property.

“If there isn’t much property available, then prices and rents will grow,” Edge says. “But you have to make sure that potential buyers of your property will be able to afford the prices as well as tenants being able to pay more.

“Another advantage of regional areas is that they don’t have the ebbs and flows of capital cities, either. And the demand we’ve seen during the pandemic seems to be continuing.”